What Is Gross National Product (GNP)?
Gross national product (GNP) is an estimate of the total value of all the final products and services turned out in a given period by the means of production owned by a country's residents. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports, and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services.
GNP is related to another important economic measure called gross domestic product (GDP), which takes into account all output produced within a country's borders regardless of who owns the means of production. GNP starts with GDP, adds residents' investment income from overseas investments, and subtracts foreign residents' investment income earned within a country.
- GNP measures the output of a country's residents regardless of the location of the actual underlying economic activity.
- Income from overseas investments by a country's residents counts in GNP, and foreign investment within a country's borders does not. This is in contrast to GDP which measures economic output and income based on location rather than nationality.
- GNP and GDP can have different values, and a large difference between a country's GNP and GDP can suggest a great deal of integration into the global economy.
Gross National Product
Understanding Gross National Product (GNP)
GNP measures the total monetary value of the output produced by a country's residents. Therefore, any output produced by foreign residents within the country's borders must be excluded in calculations of GNP, while any output produced by the country's residents outside of its borders must be counted. GNP does not include intermediary goods and services to avoid double-counting since they are already incorporated in the value of final goods and services.
The U.S. used GNP until 1991 as its main measure of economic activity. After that point, it started to use GDP in its place for two main reasons. First, because GDP corresponds more closely to other U.S. economic data of interest to policymakers, such as employment and industrial production, which, like GDP, measure activity in the boundaries of the U.S. and ignore nationalities. Secondly, the switch to GDP was to facilitate cross-country comparisons because most other countries at the time primarily used GDP.
The Difference Between GNP and GDP
GNP and GDP are very closely related concepts, and the main differences between them come from the fact that there may be companies owned by foreign residents that produce goods in the country, and companies owned by domestic residents that produce goods for the rest of the world and revert earned income to domestic residents.
For example, there are a number of foreign companies that produce goods and services in the United States and transfer any income earned to their foreign residents. Likewise, many U.S. corporations produce goods and services outside of the U.S. borders and earn profits for U.S. residents. If income earned by domestic corporations outside of the United States exceeds income earned within the United States by corporations owned by foreign residents, the U.S. GNP is higher than its GDP.
Calculating both GNP and GDP can produce different results in terms of total output. For example, in 2021 (according to Q3 data), U.S. GDP was $23.2 trillion, while its GNP was $23.47 trillion. While GDP is the most widely followed measure of a country's economic activity, GNP is still worth looking at because large differences between GNP and GDP may indicate that a country is becoming more engaged in international trade, production, or financial operations. The larger the difference between a country's GNP and GDP, the greater the degree of incomes and investment activity in that country involve transnational activities such as foreign direct investment one way or another.
What Does Gross National Product Measure?
Gross national product is one metric for measuring a nation’s economic output. Gross national product is the value of all products and services produced by the citizens of a country both domestically, and internationally minus income earned by foreign residents. For instance, if a country had production facilities in a neighboring country and its home country, gross national product would account for both of these production outputs.
What Is the Difference Between Gross National Product and Gross Domestic Product?
Gross national product accounts for its citizen’s productions both within and outside its borders. This figure then subtracts income earned by foreign residents within the country. By contrast, gross domestic product measures the production of goods and services made within a country’s borders by both citizens and foreign residents overall.
What Is an Example of Gross National Product?
Consider a country that has a gross national product that exceeds its gross domestic product. This indicates that its citizens, businesses, and corporations are providing net inflows to the country through their overseas operations. Consequently, this higher gross national product may signal that a country is increasing its international financial operations, trade, or production.